What is an NBFC?
Non-Banking Financial company provides similar services as a Traditional Bank except issuing on Demand drafts and cheques. NBFC mainly provides financial services to individuals and Businesses. NBFC is known for quick loan processing in comparison to the bank, Most of the NBFC matured nowadays and actively using alternative lending model, which is growing faster than the traditional lending model of Bank. Further RBI has been encouraging the startups to come and register NBFC.
NBFC is an integral part of our economy and they play important role in the Country building by increasing the reach of finance to the community. The government has been promoting entrepreneurship so that Local Moneylenders can come and organize their lending business. Unorganized lenders and Ex-Bankers have been very active for NBFC Registration in recent few years.
What is the role of NBFC?
The role of NBFC is very important in the Indian financial sector and NBFC in India has undergone too many transformations in recent years and Most of the NBFC Starts-up has adopted high-end Tech based business model, actively working to promote the financial inclusion & as well aggressively complementing the banking sector. Developing Countries like India, where less than 10% of people have a documented credit history hence the demand vs Supply of loan in very less. More than 70% of Indian Population is under serves with their financial needs. In the recent time, Indian Fintech Start-ups have been using alternative credit scoring model to assess the loan application. NBFC is regulated by the Companies act 2013 and RBI Act 1934. Credit growth of NBFCs is recorded at 24.3% per year as against 21.4% for banks.
How to Apply for NBFC Registration?
The reserve bank of India has bought a series of reforms in NBFC Regulations and New NBFC License process has been simplified after 2016. If you are planning to start a finance business, the 1st Step is to register a Company. After Company registration, you need to follow the following process to get the final NBFC Registration certificate from Reserve bank of India.
- Bank Account opening
- Arrange Capital of Rs. 2 Crore
- Create a Fixed Deposit of Rs 2 CR
- Create an NBFC Business Plan
- Application for COR before RBI
- RBI Will Examine the application
- NBC License In 90-120 days
What are the Types of NBFC in India?
By nature of the activity, they undertake, NBFC License can be categorized into the following -
- Asset Finance Company
- Investment Company
- Loan Company (Most Popular).
- Peer to Peer Lending Marketplace.
- Infrastructure Finance Company.
- Core Investment Company.
- Micro Finance Company.
- Mortgage Guarantee Company.
- Housing Finance Company
- Core Investment Company
What are the Categories of NBFC in India?
By Deposit following Classification
- The deposit accepting NBFCs (Type -1)
- Non-Deposit accepting NBFCs (Type -2)
Note – Currently is not issuing NBFC license/ COR for Deposit-taking NBFC.
What is Deposits Taking NBFC?
Deposit-taking NBFC is a type-1 NBFC, is eligible for accepting Public deposits, subject to prior approval from the Reserve bank of India. A few years Ago, the Deposit-taking NBFC Registration was very popular. RBI has experienced that small companies who obtained the NBFC License for accepting Public Deposit have defaulted in the repayment of deposits. Currently, reserve bank of India is not encouraging the registration of Deposit-taking NBFC.
What is the NBFC Registration Process?
In order to obtain NBFC License, the Founders are required to follow both online as well offline NBFC application process. As We know that the Central Bank is a completely an autonomous body, RBI has two departments namely DNBR (Department of Non-banking Regulation) & DNBS (Department of Non-Banking Supervision) to regulate and supervise the function of NBFC. The DNBR is responsible for the Fresh NBFC Registration as well for preparing the regulation for the NBFC and DNBS is responsible for post-registration compliance and other administrative issues. The DNBR has transparent as well innovative assessment process of NBFC Application. Hence, during the NBFC registration process, if they need of any additional documents, The DNBR will email you or send you a formal notice, RBI Expects your submission/response to a notice within 30 days.
If you are genuine enough then you can expect NBFC license in 90 to 120 days. Before the filing of Application for COR (Certificate of registration), You should read indicative checklist at below. For further details, you are requested to carefully read the RBI Circular.
#Step 1 Hire NBFC Consultant
- Experience Matters - Select an Experienced Consultant with Minimum 10+ years of Experience in NBFC & Banking laws.
- Credibility - NBFC Consultant should have a good team size of 100 to 150 with Combination of professionals like CA, CS, Lawyers, and Senior Bankers.
- Verify Reference - Ask NBFC Consultant to give you a minimum 3 references of clients
- Avoid New/Small Firm
- Sign SLA (Service level agreement)
#Step 2 – Business Plan
- Founders and Executive Summary
- Loan Product
- Lending Process with SOP
- SWOT Analysis
- Credit & Risk Model
- Competitors Analysis
- Lending model – Digital / Branch Model
- Financial forecast
# Step 3 – Application for Cor
- Create Fixed Deposit of Rs. 2 Cr with Scheduled commercial bank
- Verify the Backgrounds of Promotors
- Submit an online COR application on RBI's website (COSMOS)
- Physical submission of Application to the RBI.
What is the NBFC Registration Requirement?
Before the filing of Application for COR with RBI, you need to understand what are the documents required for NBFC registration.
- Company Name Registration - The Middle name of Company Must be Finance, Finserv, final, Investment, Capital, Fintech, Leasing e.t.c. Example Enterslice Capital Limited
- MOA of the NBFC Company - The object clause in the MOA clearly depicting the financial/Investment/Lending business.
- Certified Copy of Registration Certificate - Obtain a Certified copy of Certificate of Incorporation, MOA & AOA from the Regional registrar of companies
- Auditor Appointment in NBFC – Need to Appoint an experienced chartered accountant in practice as Statutory Auditor of the applicant company. Please check whether he/she has prior auditing experience of NBFC or Not.
- Latest KYC – Need updated KYC & Income proof of Directors and shareholders
- Net worth Certificate – Collect updated Net worth certificate of Directors, Shareholders, and Company
- Clean Banker Report – Need to Obtain a Banker report about the no Lien remark on the Initial Fixed deposit of Rs 2 Cr.
- Education Proof - Submit highest educational/professional qualification of the directors of the Applicant company
- Credit report of Directors and shareholders – Latest Credit reports of directors and Shareholders are required.
- Experience in the Financial sector - Submit at least one Director's profile with 10+ years’ experience in the Financial Services Sector.
- Underwriting model - Submit a detail action plan about the Loan products, Fair Practice code, Credit and Risk Assessment Policy
- Organization Matrix – Need to provide Organizations structure and decision-making process for approval/Rejection of a loan application
- System and IT Policy - Submit Information technology policy in case you lend via the use of FinTech based lending model
- FDI Compliance - In case of FDI, Necessary FDI Compliance as per FEMA Act must have complied
- Application Submission - Online and Offline Application Submission to RBI
How Are NBFCs different from Banks?
NBFCs provide financial services similar to banks but they are more concentrated on an unorganized sector of the society having low or no credit rating score. NBFC use big data to assess a loan application.
The other differences are:
- NBFCs are barred to accept demand deposits, however, they can accept public deposits after getting NBFC Deposit-taking license from the RBI. Currently, Deposit-taking NBFC License is not possible in our view.
- NBFCs are not entitled to issue cheque drawn on itself as they do not form part of payment and settlement system.
- Credit guarantee and insurance facility are not available to depositors in case of NBFC.
Why do I go for fresh NBFC Registration Instead NBFC Takeover?
Applying for fresh NBFC Application is always a better option, after 2016 RBI has simplified the process of NBFC Registration and especially for foreigner company, who intend to enter into the Indian Financial service market, we always advise them to apply for fresh NBFC registration Application instead of buying existing NBFC License.
Advantages of fresh NBFC Registration
- Low Legal Risk - If you are willing to apply for fresh NBFC Registration application, then no need to worry about the Past Non-Compliances. In case of NBFC Takeover, Any Past Non-compliance with RBI Act may lead to cancellation of NBFC License.
- Timeline - Fresh NBFC Registration can be completed in a period of 90 to 120 days whereas NBFC Takeover takes usually 5 to 9 Months.
- Title Risk – There is no title risk of Ownership after New NBFC Registration as you are the 1st shareholder of the company at another side in acquiring an existing NBFC, you will not able to establish the clear title of shares.
- Tax Liability – There are no assets held by newly incorporated company hence there is no short term or long term gain but at another side, if you are acquiring existing NBFC, you need to prepare for future Capital gain liability, Penalty from Registrar of companies etc.
- Capital – In the case of fresh NBFC License application, you may need to block your Rs. 2 Cr / Rs. 20 Million FD in Bank Account and definitely you will earn some amount of interest in it. At another side, in a case of the takeover, the proposed shareholders are required to submit the Bankers report stating the Bank Balance equivalent to book value of the shares.
What are the NBFC Registration Fees?
For registering a Private Limited company with Capital Rs. 2 Cr, you will require to pay a government fees Approximate Rs. 3,50,000 and further Professional fees may require to be paid to the NBFC Consultant in case you are taking expert advice.
What are the NBFC compliances after COR?
After you successfully complete the NBFC Registration Process and from here need to follow the RBI Act, RBI Guidelines, Circular, and notification published in the public domain from time to time.
- Cosmos Registration
- FIU-Ind Registration
- CIC Registration
- C-KYC Registration
- Secretarial compliances.
- Statutory Audit.
- Tax Audit.
- Income tax Returns.
- ROC Returns.
- Filling of NBS-9 by use of Online Platform of RBI (COSMOS)
- Any other Compliance / Returns required by the Competent Authority
What is Core the function of Fintech based business model?
Addressing mass problems and Customer acquisition process platform based, modular, and focusing on the Mass need Actively shaping customer behavior, Attracting user for an online loan
Working on financial inclusion – app based loan in 30 minutes. Creating space for the alternative digital banking system Disrupting conventional business models facing significant legacy issues;
Use of Big data, AI & Machine learning tools to minimize the fraud
How Fintech Enablement by the RBI?
UPI: the “Unified Payment Interface”, commonly known as UPI, holds the potential to bring the much-needed revolution in the in the digital payment systems thereby leading towards a cashless economy
- Security/Biometrics – Aadhar based payment system
- Wealth Management
Know Alternative Lending before You register an NBFC?
- Low Operation Cost - Fintech based NBFC - Extensive Use of the technology and IT Infrastructure hence operating cost (Salary & Infra cost is lower than traditional NBFC)
- Unlimited Reach - Fintech NBFC has been targeting a customer demographic who were outside the scope of the traditional banking system.
- Higher ROI - Fintech based NBFC has higher fund cost as Compare to Bank, however, enjoys a lower customer acquisition cost and Lower servicing cost than the bank.
- Lower NPA than Bank - Fintech based NPA has higher NPA compare to banks. But ROI is much higher than a secured lending model. Alternative lending business has 2 times better profit than Traditional Lending
What are the supports or Services will I get from Enterslice after Certificate of registration from RBI?
- Advisory for Fintech Based Credit Assessment model
- Assistance in SOP of the Organization
- Assistance in designing your loan product
- Finalizing reporting formats from various verticals of the organization
- Guidance on Digital Financial Services Marketing
- Assistance in designing Company Policies
- Development of High-Level Business Plan & Investor Deck
- Helping founders in preparing to Go to market strategy
- Assistance in the fundraising process via FDI Automatic route
- Assistance in meeting Secretarial compliances
- Assistance in meeting RBI Compliance
- Advisory on Adoption of Ind-AS
- Internal Audit Services
- Virtual CFO Services
What is Enterslice's SOP for NBFC Registration Advisory Services?
Enterslice is leader and Rank-1 in NBFC/IRDA/SEBI advisory services. We offer financial services advisory services in more than 22+ Countries.
- Request a Call Back - Please visit our website Provide your name, Email Id & Mobile No Get Started
- On Call Discussion with Expert – Get Free 60 Minutes on Call discussion with our expert and Clear your questions.
- Sign SLA – After on Call discussion sign SLA (Service level agreement
- Documents Checklist - After understanding of Founders Profile, We will share a detailed checklist for your necessary review and further action.
- Upload Documents - Upload documents by use of Mobile apps (Enterslice Mobile app is available on Android and Apple App Store).
- Work with Our Team - We assign a small team of 4 people on each assignment with a Combination of Professionals like CA, CS, Lawyer, and Senior Banker.
- Transparent Servicing - You can Track the order status on our website or by use of Mobile App
- All-Inclusive Package - Our team will handle end to end process like Company formation, Business plan Creation, Application drafting and assist you answering RBI Questions and will work with you as Part of your team until you get the NBFC COR.